Miners subside as market turns south

Miners are among the major fallers as the market loses all its early bail-out inspired gains and drops sharply once more by the close of play.

Initial enthusiasm that the $700bn US bank rescue package was coming closer to reality was ultimately undermined by growing concerns about the state of the global economy.

Worse than expected US unemployment and factory output figures sent Wall Street tumbling more than 270 points by the time London closed, which in turn helped push the FTSE 100 index 89.3 points lower to 4870.3. Earlier the index had hit a high of 5052 following news of the overnight vote in favour of the US bail-out, albeit the plan is now subject to another vote tomorrow in the House of Representatives.

Analysts at Credit Suisse said: "The aggregate of [recent] economic indicators in Europe, US, UK and Japan suggests global GDP slows to 2.5% - some 1.2% below consensus. US lead indicators are now consistent with US GDP growth of minus 0.5%. On a separate issue, the outlook for the UK consumer looks as bad as the early 1990s."

With commodity prices falling on fears of a slump in demand as well as a rise in the US dollar, mining companies led the way lower. Copper, nickel and lead all recorded falls of around 4%, while gold and silver dropped similar amounts on profit taking. Oil slid around $4 to $91 a barrel.

So Vedanta Resources fell 123p to 912p, Rio Tinto dropped 277p to £32.10, Antofagasta was down 31.5p at 349p, and BHP Billiton ended down 88p at £11.21. Kazakhmys closed 36.5p lower at 535.5p despite Goldman Sachs upgrading its recommendation from neutral to buy.

The bank said: "The stock offers very high potential upside in our base case and in a mergers and acquisitions scenario. We expect copper prices to recover through the latter part of 2008 and into 2009, on continued strong demand from ongoing infrastructure spending in China particularly. We believe copper is the most supply constrained metal, suggesting to us that once the market refocuses on supply issues, as well as demand issues, the price is likely to recover."

With the crude price falling, Tullow Oil slipped 72.5p to 638.5p and Cairn Energy closed 204p down at £18.90.

Intercontinental Hotels dropped 33p to 642p after poor results from US rival Marriott, and a downgrade from Citigroup. Brewer SAB Miller lost 58p to £10.29 on suggestions it might be interested in buying Australian group Foster's.

But HBOS bounced 22p to 170.1p after investment group M&G followed Standard Life and backed the Lloyds TSB offer on the current terms. Lloyds rose 12p to 262p, meaning the bid is worth 217p per HBOS share.

Marks & Spencer jumped 17p to 227.25p following its trading statement, which was in line with expectations. Rival Next also benefited, up 40p to £10.99.

Telecoms group Cable & Wireless closed 1.4p higher at 163p as Kaupthing began coverage with a buy recommendation and a 210p price target. The broker said: "We believe C&W shares are worth around 190p in their current form and around 240p in the case of a break up. The strategic value to an acquirer such as AT&T (for UK) and China Mobile (International) could be even higher. Management is highly incentivised to boost the market cap over the next six months. We believe strong financial results and the announcement of plans to break up the company will act as positive catalysts."

Among the mid-caps, directories group Yell climbed 9.5p to 90p on talk that the renegotiation of its banking covenants was progressing well. At the same time its major shareholder Invesco announced it had raised its stake from 19% to 20.13%.

Aberdeen Asset Management added 5.5p to 132p after announcing that Japan's Mitsubishi had taken a 9.9% stake and signed a distribution deal with the business.

But engineering group Tomkins slipped 4.5p to 137.75p as UBS downgraded from neutral to sell and cut its price target from 130p to 120p. The bank said: "Within the past 48 hours there has been a series of negative data points from the global automotive sector. We believe weak US auto sales figures and customer/competitor profit warnings are likely to have had an impact on Tomkins.

"Tomkins should be an early cycle recovery play and offers self-help, restructuring and good management, but we feel it is too early to buy, particularly given the rapid deterioration in automotive data recently."

Lower down the market technology group Pursuit Dynamics, a favourite of many private investors, jumped 10.5p to 155p on news that Babcock & Brown's biofuels division would use the company's equipment in four ethanol plants in the US.